IB's Yield Enhancement Program

A

AAAintheBeltway

I was scrolling through some old stuff from IB and found mention of this program. Apparently, if you sign up for it, they pay you half what they get for loaning out your stock. Since most brokers pay you nothing and still loan out your stock, it sounds like a no-brainer.

Some hard to borrow stocks command pretty hefty borrow fees, so I find this very interesting, unless I am missing something.

Anyone using this?
 
Quote from AAAintheBeltway:

I was scrolling through some old stuff from IB and found mention of this program. Apparently, if you sign up for it, they pay you half what they get for loaning out your stock. Since most brokers pay you nothing and still loan out your stock, it sounds like a no-brainer.

Some hard to borrow stocks command pretty hefty borrow fees, so I find this very interesting, unless I am missing something.

Anyone using this?
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It sounds like an innovative but fair arrangement. If you sign up, please let us know how it turns out.
 
I probably will. Does anyone see any downside to it? The only one I see is that you could possibly lose special tax treatment for dividends. They spell that possibility out in some detail. In an IRA that doens't matter.
 
Quote from AAAintheBeltway:

I probably will. Does anyone see any downside to it? The only one I see is that you could possibly lose special tax treatment for dividends. They spell that possibility out in some detail. In an IRA that doens't matter.
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One downside would be the short seller who borrows your shares drags the price of the stock down. Then you would be getting a lower price when you sell potentially. Obvious volume is an important part of the equation relative to the stocks daily/weekly/monthly/etc. volume.
 
IB has a feature that allows you to estimate your earnings based on your current holdings. When I checked, the possible earnings were a pittance of my portfolio value. And as mentioned, there's some risk that you'll loose qualified dividend treatment (although IB says they take steps to avoid this). Loosing this treatment one time would wipe out many months of earnings.
 
I participated in this program and earned about $0.50 per month per $100,000 in equities in my account. I also received a payment in lieu of a dividend. I found that this program was not a benefit for me and discontinued my participation.
 
From this disclosure about the program (link below) it looks like the program is one way for IB to gain hypothecation rights to securities when those securities are fully-paid-for and would not be otherwise available for hypothecation.

https://www.interactivebrokers.com/...pleView?file=SecuritiesLendingDisclosure.html

At least IB takes the time here to explain the program's direct benefit to IB and other subsidiaries of the parent company:

"IB may borrow shares from you and then lend those shares to one of its affiliates, such as its market making affiliate Timber Hill LLC (“Timber Hill”), for the affiliate’s own purposes (including short selling). In the U.S., IB typically also uses Timber Hill as a “conduit” to the securities lending markets. This means that IB may lend the shares to Timber Hill, which will then lend the shares out to other parties in the securities lending market.

IB or its affiliates or third parties may earn a “spread” on securities lending transactions with you. This means that the rate you receive from IB for your loaned securities may be worse than the rate IB or its affiliate receives from a third party (or that IB receives from the affiliate if the affiliate is the ultimate borrower) on those same shares. If IB’s affiliate Timber Hill is acting as a conduit, there will be a minimum 5 basis point (0.05%) reduction in the loan rate you receive for the loaned shares compared to market rates."

Does anyone know another brokerage that offers this program?
 
Quote from pbj:

I participated in this program and earned about $0.50 per month per $100,000 in equities in my account. I also received a payment in lieu of a dividend. I found that this program was not a benefit for me and discontinued my participation.
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For larger positions it is a great opportunity to earn some additional yield on long positions. For some accounts this is measured in the thousands of dollars per year and makes great sense to them.
 
I bet with stuff like spy or iwm it is not worth it, if you get anything. If you had 100k of hard to borrow stock it would definitely yield better tha. 50 cents a month.
 
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